What is the upside of eq vol exotics comparing with flow at a BB
From my understanding, if you were to make a jump to market making prop shops they tend to prefer flow traders a lot more than exotic traders.
In addition, flow business is dependent on your position building skill while exotic mostly depends on client flow, in other words something more driven by sales and market environment than your raw problem solving skills.
So my question is, what are some of the upsides of exotic trading vs flow in terms of compensation, exit ops and careeer development in general?
bump
This is interesting to me, so you're saying from a candidate perspective other prop shop market makers such as Akuna, Optiver, DRW, SIG, etc. prefer those candidates they do take from an S&T background to have been on a flow trading desk rather than something a bit more niche and esoteric such as an exotics desk?
Honestly, I guess at first look the exotic vol stuff is a bit more unique and specialized and most prop shops don't really have corresponding desks to that or the team is quite small maybe? Weird to me though as when I think of the exotic guys I think of typically some of the more mathematically inclined traders as they hedge their portfolios they always have to be thinking of probabilities and whether or not the model/risk is actually right, etc. (Occasionally an exotic position might look like a MASSIVE risk but in reality it won't play out like that re: deltas and gamma of barriers etc.)
So you're saying the equity derivatives flow desks are where most people get recruited from for the option shops like akuna Optiver drw CitSec semi-systematic, etc? I do know that some of the guys I talk to or work with re: position building and management vs client flow does make sense as well. Now that I think of it I rarely see exotic backgrounds from banks going to the prop MM's like you said, and I don't know many if any at my firm with an S&T exotics/structuring background.
Haha a lot of SB for not really answering the question. I would say from what I've seen due to Exotics being quite a niche role and the knowledge set you must have on both the mathematics/derivatives side of things I'd argue this could be a plus for job security. Although I also agree with you saying that exotic TRADING seems to be very flow driven and dependent on large institutions coming to your desk to trade. I will say I have no clue how prop-oriented these desks are but completely agree with you that flow desks do need to position their books and manage their risk well. From what I've been told from a friend who was previously at an exotics desk and is now on a team with me he had told me the game of exotics is all about hedging and matching risk, you're trying to capture some edge on the spread and figure out the best most efficient way to offload it somewhere else or repackage it into something a lot more linear and manageable.
I think an example of this was something like using call spreads to manage ERKO's and ERKI's (He gave me a PowerPoint but honestly I didn't read it because I don't think I'll ever touch that stuff lol). Exit op wise he's now on my desk probably making same or higher comp as myself but he's not really doing much exotic stuff. Would say as an exotics guy you're entering into a very mathematical and quantitative field that gives you the mindset and opportunities to obviously leverage this with vanilla options, and you're also following the market and probably have some great connections re: understanding big players delta hedging around pin risk of their exotic positions etc.
TLDR:
Comp: Going to assume S&T Exotic Guys are getting the same as every other desk except probably less upside because I'd say the desk has less prop leaning opportunities compared to FI or Commodities
Exit Ops: Going to say I have seen some exotic guys at buy-side shops, like you said S&T exotics are flow driven, you can end up at a shop who was your flow before and know the intricacies of the pricing and product from the sell-side. Or you should be quantitative and mathematical enough to just go back to vanilla derivatives. Most of the replication of exotics 100% means you will understand greeks inside and out etc.
Career Development: This should be the same as any other trader on a desk. It's just a different product. FI traders and EQ Derivatives both are traders with AN-ASC-VP-D-MD path, Junior-Trader-Senior Trader path, or Analyst-SR Analyst-PM path.
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